The Panama Papers: Banks and Private Blockchains in the Service of Corruption


Last year, blockchain has effectively become a buzzword for banking organizations. The initiative of R3CEV, an umbrella for several major financial players, is the talk of the town. However, in the light of recent leakage of so-called Panama papers, all those initiatives, from Ripple experiments to R3CEV, should probably be considered from a different point of view.

The leakage of Panama offshore papers has hardly discovered anything new: good old schemes used by as good and as old players. However, what is important here, it was banks who acted as intermediaries in all those affairs. Now they start using the blockchain technology to become even better at this.

What Happened

Last year, an unknown individual going by the alias of John Doe, gave German newspaper Sueddeutsche Zeitung access to 11.5 million documents of Panama-based company Mossack Fonseca. With the overall amount of data reaching 2.6 terabytes, the newspaper couldn’t possibly handle it in its entirety, so it invited International Consortium of Investigative Journalists to join. There were over 370 journalists from 76 nations working on the set of documents.

The result of their work presented last Sunday was titled The Panama Papers became the greatest scandal since WikiLeaks, as it disclosed offshore ties of 12 present or former state leaders, 128 politicians, 29 billionaires, alongside with drug kingpins, members of the British House of Lords, and sport and movie stars.

The investigators believe that Mossack Fonesca facilitated covering-up financial crimes, with its lawyers and experts providing a proper follow-up to registering dozens of thousands of offshore companies basing on true information provided by their clients. This true information, however, never found its way to official tax declarations.

Notably, analysts of the fintech world, like Andrew Quentson of, suggest that none of this would have happened, had a blockchain-based system been implemented for international financial relations.

“Bitcoin […] provides privacy for the masses and transparency for companies, the rich and wrongdoers. The exact opposite of the current situation where the rich and powerful cheat by not paying their fair share as certain companies make billions in profits, while avoiding paying taxes. While, on the other hand, the masses have as much as 50% of their wealth taken away,” Quentson wrote.

Banking System in Discredit

Major media resources focused on names and amounts featured in the Panama papers. However, they all seem to have forgotten about those facilitating embezzlement to politicians and other players.

The Panama Papers tell a story of Mossack Fonseca being very careful about security and confidentiality of its customers. The company’s employees even destroyed documents and records on computers if they received any governmental query. Notably, the company giving so much care to its clients, was closely cooperating with Deutsche Bank, HSBC, Credit Suisse and other major international banks.

What does it mean for an average person, a taxpayer, who has a plastic card and stores his or her money in a bank? There’s no good news. For instance, in Russia, according to official data for 2015, nearly a hundred banks had been shut down. If a government has so much power over the banking system, and may force the assets to be moved in any amount, there’s no guarantee that a regular person’s money may be just moved away to a Panama. Taking the money away, putting it in an offshore account, driving the bank into bankruptcy, and forgetting all about that is almost a perfect sting. Almost.

Anyway, when dozens of major international banks have their fingers in this messy pie, the problem is not some dishonest individuals, but the system in general. It works not for the benefit of all, but only for the chosen ones. Regular people have their discounts never keeping pace with inflation rate, loans on extortionate interests, and debt collectors.

Private Blockchains in the Service of Corruption

When yet another report states that blockchain technology is capable of making financial operations transparent, one should understand it means some kind of private transparency. It would not be an easily accessible public ledger of transactions, like that of bitcoin, but a corporate database, nothing more. That’s where one might realize the enormousness of the bubble around the technology. The bubble not only draws attention away from bitcoin, attracts venture investment and media coverage, but also may give an extremely powerful tool to corrupted players.

Nowadays, withdrawing assets to an offshore account has to go through a series of red tape procedures to conceal the true source of revenue. Certainly, it does not entail any instantaneousness. Let’s just imagine some conventional blockchain consortium, named FKUP for the sake of clarity, running an operation of moving funds from country A to country B. The scheme would imply some suppositions, which, if the Panama papers are true, are quite possible nowadays. All documents are burnt, and confidentiality is king.

Let’s imagine that FKUP is an umbrella organization for 30 banks from 30 nations. Some of those countries may be those off-shore, some others might be totalitarian or autocratic, while others are regular ‘democratic’ nations. It doesn’t really matter what consensus algorithm is used in FKUP’s blockchain system, but let’s assume, for the sake of clarity again, it’s proof-of-stake.

Now, a dishonest player sends several billion dollars to an offshore account. The money gets there in ten minutes. And, as an additional option, a bank (or a Mossack Fonseca-like company) may offer the customer, who certainly wishes to conceal both the source of money and his or her identity, to rewrite data in a way that make it seem that the money had come from a completely different country, where a member bank is also present. The source may be, as usual, a short-living company standing in the name of a sea captain.

The key difference with today’s system is that using private blockchain:
– Signifiantly facilitates and accelerates such operations;
– Cuts expenses for implementation;
– Allows to change transactions history to cover tracks, or even completely remove them.

This seemingly elementary sequence of steps does not have anything to do with anti-corruption, but is in fact a mere tip of an iceberg. The only conclusion here is that blockchain technology, just like any other known technology, does not operate in moral or legal terms, and is applicable both for good and for evil. However, the evil here is on a different level, and they rarely entail any responsibility for the criminals involved.

Private blockchains in this case is a perfect weapon for international financial delinquency. Bitcoin and its public blockchain are weapons for the masses. Next time you hear about yet another initiative related to private blockchains, you should think how it might affect a regular user. It would not affect him or her whatsoever in the best case scenario; in the worst case, the integrity of his or her funds might be in jeopardy.

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